Venture capitalists, especially those investing at the early stage, could be described as “relationship capitalists”. You’ll often hear how investors approach their commitments like a marriage, and that they think long and hard about with whom they want to go to bed. Avoid picturing that second part.
But the VC mystique can be inexplicable at times. Why do they send such curt emails? What the #%$! do they mean by “traction”? Are they even paying attention?!
Here are some things they might be thinking (but probably won’t flat-out say) during the courtship process, and how you can prepare, take ownership, and rock the pitch.
1. “I can’t remember what you do.”
VCs have countless meetings with entrepreneurs, and review even more pitches remotely. Chances are, you’ve scheduled a meeting weeks ahead of time due to a jammed calendar and travel itineraries. Or, you got turned down before, months or years ago, and are having a follow-up discussion.
Don’t take it personally if you’re met with a semi-blank stare. Start the meeting with a brief sentence or two that subtly describes your business and background. It’ll help prevent confusion (and potentially glazed eyes) deeper into the conversation.
2. “I don’t get your product.”
Speak simply, and get to the point. VCs understand that you’re 1,000% excited to be tackling the problems you’re tackling, but stick with one storyline at a time. Reading between the lines is a little too much work. Treat them as if they were a valuable customer. At the very least, it’s great practice for when that is the case.
Moreover, ensure that the investor does, in fact, understand your business, rather than just thinking so. One approach might be to say, “Now that I’ve told you what we do, I’d be very interested in how you describe the business from your perspective.” You’ll likely gain some enlightening feedback on your pitch.
Of course, the above implies that you know your business and market inside and out. The less you understand, the less value you’re likely to provide to your startup, and the less an investor will want to get involved.
3. “I know I’ve heard of others doing this…”
Have a clear handle on your competitive set and address them outright. Entrepreneurs should be fluent in the goings-on of their industry, and have a firm understanding of how their business differentiates itself. Unless the VC is very familiar with your space, they may withdraw temporarily as they rack for comps.
This is also a common test. Either way, be prepared to knock it out of the park.
4. “Can I add value to this business?”
Illustrate how your VC can provide value to your enterprise. Every VC wants to feel like s/he can offer more help than signing a check; your investors want and should be a part of your braintrust. Demonstrate that you know the firm and profile, and can explain how this will take your company to the next level (which, with any luck, will reap benefits for them too).
5. “You’re not solving a real problem.”
Answer this: How is your business changing the world? Put in other words: Why would anybody (or more importantly, many people) care? Hopefully, it’s not another rendition of the ice cream glove.
“Real” is often a measurement around market size; how many customers are out there, and how much are they dying to pay you?
6. “I don’t believe you’re right to lead this business.”
Now that you’ve convinced your VC that this is a market going after, make it undeniable that you’re the dream team to go after it. Explain why you have the perfect blend of skills, knowhow, network, and passion that no one else can flaunt. If your investor had to make only one bet on your market (as investors frequently do), why should it be on you?
7. “I’m not sure if I can afford this.”
VCs allocate their funds towards new investments and follow-on rounds. Your terms must make sense in regards to their financing ability and equity interests. “Affordability” also refers to time; investors may simply pass because they’re stretched thin with their existing portfolio companies.
Do your homework. Potentially save yourself some time by looking into the VC’s investment stage, investment size, and board commitments.
8. “It doesn’t feel right.”
You may very well be something like a 90% Match, 10% Friend, 0% Enemy for your VC. You’ve checked every box, made them laugh on numerous occasions, and shown them a good time or two. But sometimes, the chemistry falls short of science. Don’t sweat it and move on. There are many opportunities out there.
(Special thanks to Brad Gillespie (IA Ventures), Steve Schlafman (Lerer Ventures), and Michael Klein (Canaan Partners) for their thoughts and contributions to this post).
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